Good day, ladies and gentlemen, and welcome to the Q4 twenty twelve Dora Enzo Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ula Parjenen, Head of Investor Relations. Please go ahead. Thank you, Samim.
Good afternoon, everybody, and welcome to Torrance's Q4 and Full Year twenty twelve Conference Call. And we will have a short presentation here with our CEO, Jorg Karbinnen and CFO, Karl Sundstrom. Jorg, please go ahead.
Thank you. Welcome everybody to the fourth quarter and full year conference call. If we go straight to page three, which is the operational EBIT and cash flow chart of the company for the past couple of years, I guess the key message is stable EBIT, a little up year on year, a little more down sequentially and a very, very strong cash flow. In all transparency, the fourth quarter cash flow includes about $80,000,000 cash flow injection from our ForEx associates. But even if you take that out, I think it was a very strong performance on the cash flow side.
Then if we move to page four, the €155,000,000 EBIT stable. I call it already the cash flow $471,000,000 And with that then we believe a very strong liquidity of 1.8 or million $5,000,000 at the end of the year. Return on capital employed and weak 7.1%, I would like to highlight when you do the comparison that in the order of 1.5 plus points of that is the fact that we in 2012 also have invested in strategic investments and we have significant amount of capital on the balance sheet that does not or did not generate any revenue then. But that obviously is in line with our strategy of where we invest and where not. And then a stable dividend at $0.30 per share.
We move on to page five, which then actually goes straight to the printing and reading the paper. Sorry, I might highlight a couple of points there before I talk about the market. It obviously includes some of the indications of our proposed actions and the short term outlook. This is again EBITDA and cash flow instead of EBIT. Why EBITDA?
Because the EBITDA seems to be the one number that all of our competitors also use as a direct operational number. There is no biological asset revaluations or impairment reversals or impairments in there. Throughout these past couple of years that we show here, I would suggest that we can say a strong cash engine. If you look at the table below, the fact that in a relatively challenging market environment, we were able to actually improve the cash flow, I think a good achievement. And then a smaller detail maybe both sequentially and year on year this be a hit improve EBITDA.
And then the everlasting question well, yes, but what about the interpret pulp there? Well, I can tell you the 10%, 11% EBITDA margin here with a couple of points in there for the slush pulp, we happen to think that you can't sell it anyway that it should be in the numbers, but for your own comparisons that gives you the figure there. Moving on to page five, curve that new product as little as we do is not a forecast. The actual development of the European paper demand. And I think you may be seeing towards the end of it the 2012, but if possible more challenging in demand development than we thought, but if I may respectfully say than you thought or any of the agencies thought even in the mid -twenty twelve area.
And so to say, is what it is. I believe it's a combination of the economic cycle and the structural demand phase, but that's the reality. And then when you dive into the segments as we've said in our CEO comments also, the reporting numbers now are 9% down both in newsprint and coffee mechanical and that's where we are. Page seven essentially shows you the same curve, but then it uses one of the agencies' forecast three years ago, two years ago and one year ago. And I guess this again is a reflection on the fact that the development primarily through the structural change has developed less favorably than pretty much anybody expected.
Expected. And with that, if we go to page eight, not the first time. I mean, we have done this in the past five, six years many times. We are proposing to reduce new capacity 475,000 tons. And if you add the machine that we shut down permanently at the year end in Rigset, it's 650,000 tons.
Cost savings €24,000,000 per annum and then the €42,000,000 write down and cash provisions €40,000,000 and the order of 300 people impacted. Let me try to be very clear. The reason for this is not the ongoing price negotiations or any of that. The reason is and consistent with the past when the demand goes down we have and we're taking high cost capacity out. The math for us to give a return to our company on this actions we face, not only in the cost savings, but like so many times before, we're taking low margin volume from several assets out and then we move the better margin volumes from VB cost assets to lower cost assets.
Our math does not include any green strokes of general price increase or any like that. That's not the math. And even with this math, we believe this is a necessary and reasonably attractive payback for the company. Now you could say 650,000 tons or 475,000 tons is going to make a change.
Well, first of all, it's the segment based number obviously. And if you believe that the face value overcapacity is calculated based on European production versus the European demand and you take into account the net exports that actually the our view is that this capacity significantly changes the demand supply situation in Europe on this point. Let me move on to page nine. Our next challenge building and living, a very difficult business. And if you look at the graph, I'm not going to go through the details there, but essentially you can see the five, six quarters we are at profit and cash levels that are not acceptable and that's why we need to do another workout.
Moving to page 10 where we target €30,000,000 cost reductions with a relatively or actually very small cash impact on one time. Why? Because a lot of the sales are based on massive people reduction, but they're based on converting fixed cost variable outsourcing, insourcing considerations, simplifications of IT systems, energy improvements, consultants and so on. I think you would agree with me that looking at the financial performance of the BA, even if we think that it may not be that bad in its own league, but it's not filling up. And therefore, we have now decided to launch on Slack.
That's the restructuring news. Page 11 then we talk about the strategic investments. And 12 I talk about China. Skucal started on November 8 as planned. Oseleka started up on in January actually six weeks ahead of schedule.
It's actually now in the ramp up for the next couple of months. So, so far looks very good. The reality is so that the core is really commercially up and running and starting to generate the real returns for us. That will be more in the second quarter because I've finally learned also that these things don't totally ramp up in a day. But in the next couple of months, I'm confident we'll get it up and running as planned or maybe even slightly ahead.
Monterey Platte with the large investment in Uruguay, 80% plus completed. And based on the most recent information from our management and our Board there and the partners, we're still targeting a mid year 2013 product. Let me move on to page 12, China. And let me start with this. I am equally or more positive on China than I've ever been.
The truth is we said in April 2012 that we expect to get the final approval from the Chinese central authorities by the 2012. But as you can guess by now we didn't, which means that we're about six weeks late right now. But that's not a big worry for me. Why? It's a very large investment.
We're using every day, every minute now this time before we need to make large capital commitments to prepare as well as we can including we're testing and verifying our wood supply ramp up including testing mechanized harvesting, the training people. We're obviously a full force on detecting on commercial discussions to optimize postings. And therefore, everything we do now will not only reduce risk in the actual implementation phase, but also make us obviously more efficient. Strategically, I'm as convinced as ever this is a good project. I'm equally convinced that the Chinese government on all levels sees is good for China.
For example, we have the one and only plantation with the full SSE certification and Chinese certification in China. And the fact that we have not committed to capital means that the running cost of the industrial side and the trainings and the verifications cost is very marginal and the force that actually grows value every day. So, yes, we're six weeks late. And then on the accrual side, but I think you would probably agree with me that with all the changes going on in the Chinese government now after the Chinese New Year and so forth that's not a big surprise. Let me move on then to page 13, return on operating capital.
And we highlight there the two growth engine business areas and the picture is basically telling you that versus the group level the impact of the non revenue generating investments in 2012 and in 2011 well 2012 was 1.5 points on the return on capital employed. So you can see that especially in biomaterials, but also in renewable packaging. Whether you look at the full year or the fourth quarter, we actually are clearly value creating in those malls. And we believe that once these gray parts of the bar are actually generating revenue, they will do nothing but enhance the value creation. Page 14, a four quarter rolling cash flow.
Top of the chart is the cash flow from operations. With all the instability in the market is the market path, I think this has been a strong number and continues to be a strong number. The restructuring actions are done to secure that in those VAs. And then you can also see that the cash flow from investment activities obviously is somewhat impacted, but clearly still in the positive territory given the large strategic investment. Let me stop here and hand it over to Karl for Page 15.
Thank you, Juuko, and good afternoon to everyone. I just want to go through some financial slides before we hand over to the Q and A. So first one is this financial summary, which is slide 15. I want to point out that we had an increase of €10,000,000 in operational EBIT compared to the year ago period. We actually decreased by around €20,000,000 in operational EBIT in sequential.
And another thing I would like to draw your attention to is that the profit before tax excluding NRIs in the 2012 versus the 2011 has decreased by around million euros and that's basically due to the direct exposure evaluation. And I also want to point out the strong cash flow and the improved net debt to EBITDA for the last twelve months. If we then turn to slide 16, you can here see the sequential decline of €20,000,000 which is basically all caused by 50 increased fixed costs. And they're basically the 2% there is basically divided into two distinct areas. One is maintenance and it's around Skogal and Sumila.
And the Skogal, we actually included in our guidance into Q4. And the other part is the seasonality in the salaries that we are having in Storenza. If you compare to a year ago period, you can see that the sales price for the total STORAMSO is down 2%, but it's compensated to be able to create a $10,000,000 higher profit due to volume and variable cost decrease. If we then move to slide 17, you see here that we are in the trend of reducing working capital over sales. And in the last quarter we managed and actually to reduce it from 18.4% over sales to 17.2%.
And this is something that has been a long and hard work and it's something that we feel very good about. If you move to slide 18, you see that we now are actually coming down in the net debt to EBITDA to 2.5 times. And the reason for that is that we are having a fairly stable EBITDA, but more importantly a very strong operating cash flow in the fourth quarter. And then if you turn to slide number 19, which is the guidance for the Q1 twenty thirteen, sales are at roughly the similar level as we had in the previous quarter. Operational EBIT in order of magnitude one third lower due to deterioration European paper and building and living market the restructuring plans that we are planning to implement will impact the group results from H2 twenty thirteen.
And then if we turn to slide number 20, this is a projected CapEx and equity injection plan for 2013. And I repeat, this is excluding the investments in China. And we will once we got the permits that Joko referred to come out with plans telling you that. But this is the plan excluding the China investment. If we then move to our last slide, which is the summary.
So the Q 4 EBIT improvement versus the year ago period, we had strong cash flow and liquidity, paper capacity reduction planned to address in declining paper market and we are adjusting being a living cost structure. Skogal and Australakra investments started up and ramping up and Monsters de Plata start up midyear twenty thirteen. With that, I hand over to the Q and A session, Pilla.
Okay. Yes, we are ready to Q and A. Thank you.
You.
We will take our first question from Michael Jas from Chevreux. Please go ahead.
Yes. Hello. Good afternoon, everybody. I have two questions. One is on China.
Could you please try to explain a little bit about these permits that you're waiting for? Are they like environmental permits or building permits? Just some clarification would be helpful. And then the second is more of a housekeeping question. If you could please quantify the impact if possible on the Renewable Packaging from these temporary production disturbances that you write about in your report?
These were my two questions. Thank you.
Thank you, Michael. This is Jelko. I actually got the question in a different context earlier today. With these plantations and the size of investment, there's hundreds and hundreds and hundreds of different permits and approvals and so forth. What we're waiting for is essentially two things.
It's the NDRC, which is central authority final approval that then defined the status of the project and so forth and so on. So that's one approval. And then things go further and then there is what's called a mofram approval and so forth. But you should not worry that we're missing environmental or certification or any of these. Is this I don't want to call it the final stamp, but it's the final central authority approval that we need to have before well that we definitely want to have before we would make capital commitments, right?
Because once we make those commitments then with all the respect then we need to move decisively and fast because as you well know two years after you lost the capital commitment then it gets very expensive. So I want to I'd be maybe the bad guy who will be very clear saying, I want all the formal approvals done so that we have a clear road ahead. That's why we're practicing now. Sorry for the long answer. And Pala can take the other one.
So what you're referring to is the problem. So we had and it was part of my presentation also that we had maintenance windows in Skogal and Sunilay in Q4. And in the fourth quarter, we had problems of starting up after the maintenance window in Skogal, But we also have some issues in Imatra. And altogether, I estimate that to be around $5,000,000 Okay.
Thank you very much. We
will now take our next question from Johan Sjoberg from Carnegie. Please go ahead.
Yes. Thank you very much. Coming back to your comments upon Monte Del Plata here. Can you say something about what type of ramp up of production one should expect now in mid-twenty thirteen? And you say also something about the if you could say something about the EBIT impact in biomaterials in Q1 from the maintenance shutdown?
Okay. We I always expected the first one and then Karl can do the second. I'm not totally sure how to answer, but let me start this way. The midyear is when people say Tata and that's what the experts say when the first chip goes to the digester. And that obviously is the day one when you start wrapping up and so forth.
And it will take several months. So I won't be able to give you a quarter by quarter EBIT impact on that. But the other way around what we're doing now and I can share that with you is we're putting all the efforts obviously on the schedule, but we are also putting even more efforts on quality assurance, so that we get a successful ramp up. Because economically, if we would be a week or a day or whatever late in the first day. That's not so important.
But it's very important when we start when the first chip cost is digested then we actually can ramp it up. There are examples from other companies where you can say, well, I have the day one, but that doesn't count for me. So essentially the midyear is when we start ramping it up and we're trying to do everything and anything that we have even though it will take several months successful ramp up to premium quality products, which is also what our customers expect. That's I think the best I can say. And Karl, can you So
if you're referring to what we're talking in the guidance about the Vera cell maintenance that we are talking about window that we are talking about in Q1. So the delta, I think Q4 and Q1 is in the ballpark around €10,000,000
€10,000,000 Okay. And just okay. And if you look at also just on your restructuring measures also now within newsprint, you're saying that this will have quite a significant impact upon supply demand balance in Europe within newsprint. How is your own? I mean looking at your own production profile or what type of operating rates do you see yourself running with as an average within printing and reading?
I understand that news print would be quite high, but I guess there are other product segments which are much lower or?
Well, in the
not to take too much time, but remember I defined the overcapacity as production in Europe taking into account the next exports versus European demand. And against that the overcapacity in Europe grade by grade is varies between 3%, 4%, 8%, 9% and so forth. The truth of the matter is and therefore the impact of this April plus Christmas in our books is not only going to move the needle, it's going to really change the position. Then to answer your question on operating rate, on NewSpring, if and when we implement this plan, definitely will have an impact significant impact on our operating rate. But also very important, like I always say is that managing the customer portfolio and when we shut capacity within Sorrento, we believe that there's a great value enhancement when you can make sure that the volume you get rid of or don't produce is the lowest margin volumes.
The planning, we always do this.
Okay.
On the other grades where we don't we have not announced anything permanent like before where especially because it's more possible in some countries than others, we will focus very much on cash generation and strong cash generation and we will take active and aggressive curtailments where it needs to be.
Okay. And just Karl, can I ask you two questions upon your income statement also? If you look at financial items, what is the interest net interest rate cost in Q4? And also what tax rate do you should one use as an estimate for 2013 would you say on a group level?
I think the best way to do it and you know that if you take the interest rate is to use 5.25% as an interest rate on the debt.
Okay. Great.
And the tax rate for 2013?
I would I
would say about when would you can I have a look at that and come back to you?
We'll get back to you in a after a couple of questions to give you Thank the correct you very much.
We will take our next question from Linus Larsson from SEB. Please go ahead.
Yes. Thank you very much and good afternoon. Coming back to your guidance for the first quarter. So if I understand you correctly, you're guiding for a sequential decline of around €50,000,000 Could you break that down please? Could you say for instance how much of that is relating to the Printing and Reading division?
JACQUES Except I this is JACQUES. So I'm the easy one to give you a rough answer rather than too accurate. Majority of it is clear majority of the drop is Printing and Reading and still billing and living. Remember where they were in Q4, there isn't that much drop so to say. And then on the printing and reading without giving you exact numbers, it is in Q1 specifically now with the demand drop, yes, we'll do more curtailments that will also have some cost implications and cost implications.
And then without getting too specific, obviously, there is pricing pressure too, which is why we are launching the action now to have better outlooks in the future.
Do you expect any of your divisions to be at or below EBIT breakeven in the first quarter?
If you forgive me, I'll stick to the principle that we don't give segment guidance on if I start it, it will never let me stop.
Yes. Yes. No, that's fair enough. And then again just to better understand your guidance. In the fourth quarter, did you have any FX gains?
And if so, how much included in your EBIT?
No, no, we did not have any FX gains. But I will give you now the tax rate
for question the
Mikael and that is 15% to 20%, I would say. Use that.
Yes. That's great. And then also coming back a follow-up on Guangxi. If you were to give a range as to the possible CapEx in the current year, I guess it could be the low end of that range I guess could be zero, but what could the high end of that range be?
Carla can think about the number answer, but let me just say this is a very good question. I don't expect it to be zero for the reasons I already explained. But in some ways, please think about it this way. Right now a delay of a month or six weeks has no economic impact materially in the value creation of the future of the company. In a funny way, I think you agree that the closer we get to cash being generated by Monte Seclaus and Ostelek and the others before we spend huge capital in Tiger is actually not a bad thing.
It is a bit of a balancing there. But Karl, do you want to give a ballpark of the maximum?
No, I don't want to give that because if we give that we start to talk about a plan and we have decided to say once we get the permits we
will That's get fair enough. On your other big project the Montes Del Plaster project that we talked about earlier and the ramp up and so forth. Is it a possibility that we will actually have a negative first I mean third quarter impact on the EBIT line from this start up that will you will actually see some costs before you see some revenues. So the first quarter of that start up curve will be a negative contribution. Is that something that we should anticipate?
Well mathematically, I mean whether it's a if it's a big pulp mill or big interest definitely because essentially you if you think about it, if it's a linear curve from if you could do it in three months, have half the volume coming out, but you have 100% of the cost coming out, right? Because you have all the capital, all the people, all off, which proves my earlier point I think that when you start it and you get the people in there and all the costs in there then you do want to ramp up in a decisive and relatively fast manner. So that's a long way to say, yes. Third quarter is not going to be a gold mine on the spot as we start midyear. And with your I think that's bigger.
Sorry.
Yeah. And with your experience, it's even a successful start up could be a negative EBIT contribution in the first three months of its lifetime? Well, this is
to be honest personally, it's my friend, Pablo. But I was just trying to use the example that if you do a three month ramp up from zero to 100, percent, then the average revenue is 50% of the full, right? But you have 100 of the cost. And even the fleet margin levels well, it's not a gold mine. So we need to get in the first three months.
The second three months we can talk about.
Sure. That's great. And then just finally on the core Behem situation, if you could give an update what's going on? What's the time line there?
We're working on it and I know it's a bad answer, but it's progressing as I expected. And so the best news I can give you there is no change. We're still implementing the plan to try to sell the app. And I don't want to give you a time line because well that would be if possible more difficult than try to decide on any individual permit anywhere else. But we're full speed full resource working on trying to get that done.
Right. And just so I understand it clearly. And the plan A is pretty much to sell it in order to for it to continue the production that of the product that is currently produced?
Let me rephrase it. When I look at the exact product portfolios of the company in the remaining assets, the best outcome obviously is that it would be sold and then it would produce products that are not exceptionally competing with the rest of our business. We'll see. But I don't want to go too far before I'm sure we'll give you an update in next time we talk to them where we are with them.
That's great. Thank you very much.
Thank you.
We will take our next question from Lars Kjellberg from Credit Suisse. Please go ahead.
Yes. Most of my questions have been answered. Just have questions on the consumer board market. If you want to share some light what's going on there? There's been talks in the trade press of some spot pricing pressures and I guess somewhat softer demand.
I mean, what are you seeing in those markets? I know you've one of your competitors International Paper talked about weak consumer packaging board markets overseas as a spot of weakness in the fourth quarter results. Do you have any light to share?
Well, first of all, I'll take the easy part. We don't comment competitors and especially don't comment competitors comment. We actually no, no. I would say this. We think it's actually especially relative to the overall economic situation is a very okay market.
That's not I have enough issues in all the other in many other places, but this we don't actually see anything significant. If there would be, we would have said that also. But I guess you can conclude that I may be more positive on that than the competitor you mentioned.
Okay. And in terms of pricing trends, etcetera, that's commented in the trade press is that something you've experienced?
Same thing. Stable market and depending on the second some growth and so forth, but stable price levels too. Overall stable price levels.
All right. That's all for me today. Thank you.
Thank you. Thank you.
We will take our next question from Antti Qatvari from Danske Bank. Please go ahead.
Yeah. Thanks. Few questions left. Firstly, your newsprint capacity shutdowns where you expect €24,000,000 positive item from fixed reductions. You're expecting also €190,000,000 negative top line impact.
Just to be that I read it right, do you expect the full €24,000,000 to contribute your EBIT line? That would be the first question. And secondly, if you could talk a little bit about your pulp balance going forward with these capacity closures now excluding Montetel Pota. Thank you.
Okay. Let me try to think. So you're asking the €24,000,000 if it's pure cost, yes, it has to go straight to the bottom line. And I think what you're trying to say well wait a minute if your volume goes down then your group overheads and all the other stuff is going to burn that. Well that as before hopefully some track record we need to adjust to as well.
When the company if and when it gets smaller then the overheads need to get smaller too. So we expect that $24,000,000 go straight to the bottom line. And then in addition and I will not give you a number that customer or product portfolio customer portfolio optimization that I talked about that we try to get rid of the lowest price volumes will add to that number to some extent. But I if you don't mind, I will not give you an exact number. All right.
Then about the pulp balance, if you
can Anastoli. I'm Did you ask whether this first of all, it's a smaller impact because the Schuylter machine is a recycled fiber based machine. So there is no pulp. I believe the plant's weight in number 11 is TMP based. So neither one has chemical pulp impact.
And remember it's or long fiber started in virgin pipe.
All right. What about the impact from the overall volume decline in the paper segment? I mean,
fine paper, I think, particularly?
Nothing dramatic in that sense because if we leave down the amount of spot to stop out remember we were a bit short on short fiber anyway, but zero two five million tons and then we've been long on long fiber and we'll write and sell it then. So I don't think it's a negative in that context at all. All right. That's all I had. Thanks.
Thank you.
We will take our next question from Henri Parkinen from Pahoehler Bank. Please go ahead.
Yes. Hi. First of all, afternoon for everyone. I have questions. My first question refers to your slide number 16 when you had some figures concerning variable costs.
If I understood correctly, you were saying that on a quarterly basis variable costs had a positive impact on your profitability during the fourth quarter. And when going more in detail, we have seen that the wood prices in Sweden they have come down quite dramatically during last part of twenty twelve. What kind of impact it had on your P and L during the fourth quarter? And what should we expect on the first quarter of this year and taking into account that there might be some delay in your sourcing and impact on your profit and loss account? And second question regarding your newsprint capacity closures.
Yes, you are taking 475,000 tonnes out of the market. And then we saw last year that European shipment volumes in newsprint they came down by some almost 5%. But how sensitive you see that those export volumes from Europe are for foreign exchange changes? Because we have now seen that euro is quite strong against U. S.
Dollar. So could you please open these dynamics? Thank you very much.
LARS So first of all on my slide 16, there is a comparison on quarter four versus quarter four in 2011. And there is a comparison between quarter three, 2012 and quarter four twenty twelve, just to be very clear. And we have variable costs coming down compared to a year ago quarter. But between Q3 and Q4, we had a negative because of the maintenance of Skogal and of fixed cost on salaries, which is seasonal always hitting us. And then going into 2013, I previously said we which is part also of the guidance, we will have maintenance in Veracel, which will have an impact of the ballpark of €10,000,000 I think with that I have answered your question, right?
Yes, yes. Okay. Let's put it this way, because I'm wondering these two pictures both of these are showing plus something for fourth quarter comparison comparing the third quarter and then on a year on year basis. But of course there is some maintenance issue. Yes.
That's fair enough at this date.
Yes.
Okay. The second question can you repeat that part so I'll get a better understanding of it
Yes. So talking about this 435,000 tonnes newsprint capacity you are taking from European markets and you say that you expect that this will have a material impact on demand and a supply situation in Europe. But one part of these volumes is also of course export volumes from Europe outside export. And my question is that we have now seen that euro has strengthened against dollar. How sensitive these European export volumes are for currency changes?
So well that's the thing, yes.
Okay. Well, can probably continue with the currency sensitivity overall on dollar. But let's be clear, if there would be no export, no net exports from Europe, only some newsprint capacity production capacity 2,500,000 tons bigger than the European demand. That's a horrendously big number. But when you take into account the net exports then that turns into less than 5,000,000 tons.
So you could not I don't think you could analyze saying, well, what if there's no net export? Then we get to your real point which is true, but if the dollar stays at $1.35 is that going to make life tougher? And the answer is yes. I don't think it's a hugely significant impact. We watch our Europe versus export balances very carefully.
And we've actually been very, what I may call, agile in getting in and out of the exports more than the others. But let me try to think how do we quantify that now, because we know the overall currency impact.
So we are long in U. S. Dollars, if I take the last quarter and that will also be part of the information when we have the annual report out. But basically of €125,000,000 per quarter and then if you and we had an average exchange rate of $1.3 So if you go up towards $1.36 to $1.35 we're talking somewhere between like $5 $5,500,000 But that's it's very important now. It's very important what Juuko said.
That is something we deal with every day, because obviously that is affecting our profitability. And that's how we enter the contracts and how we headship etcetera, etcetera.
For the short term, it's not a huge impact from Q1 and we'll see how it's going to go through there. Can you give me some very, very long answer? Yes. If you can, I
can also? So thank you.
I can. Thank you, Antti.
We will take our next question from Gary Winter from F. B. Please go ahead.
Yes. Thank you. Firstly, a question on the paper pricing. You indicated that paper prices are on pressure in the first quarter. If I look at the official statistics, typically see that paper prices trend down during the first quarter and then they sort of stabilize on the new level sometime in March, April.
So if I would look at those then that would suggest that average prices are still higher in Q1 than they are in Q2. Does that also apply to store ends or are your prices adjusted at the year end and then therefore first quarter and second quarter prices are identical?
It's a very good question, but I'm afraid I'm not going to be willing to totally answer that. Number one, as you well know, we're in the 60%, 70% phase of the pricing negotiations. And the one thing I would not definitely want to start quantifying is, because it's very different in different grades and very different in different geographic markets also. But maybe this would be helpful. We are very focused on the pricing quality as always.
And we even in situations where we need to live with longer period a little longer period with monthly contracts rather than longer term contracts, we're very happy to do that, because we believe that further in the year these price levels need to not only stabilize, but even hopefully improve because well because of the profitability issue. But I would let me go this far. I don't see the trend that you're saying that Q1 would be somehow better by any means than Q2 and forward. Maybe that's for the second. All right.
That's helpful. We'll be pricing negotiations. I
understand. Then a sort of a follow-up more longer term. If we look at this transformation process of yours, the big investments into non paper operations at last year's Capital Markets Day, you were presenting your paper operations and cash flow from paper operations as one of the key funding sources for these investments. Now the I don't know what kind of projects you have, but the cash flow from paper is seems to be lower this year than what I had in my estimates last year. So my question really is that do you still see that paper is producing the cash flows that you expected to fund these investments, especially as the remedial action that you're taking I.
E. Closing capacity has upfront cash costs and then in longer term you get the savings or the sort of positive cash flow impact from this? Or do you have to drive participate in some sort of more drastic action when it comes to European paper or like you say consolidation because that's what I
mean? Well, the many questions actually. The short answer to your first question is absolutely I believe that the cash engine that has performed for years and years through some very, very difficult years and I don't want to remind you everything from my day on the Russian book using the name it. Essentially and we have one proof of it even when things really went wrong in 2009 and we lost I usually spend 20 margin points on that. We keep the cash engine ticking with all cylinders for a few quarters.
Of course, first of when you take volume out and you manage your supply chain, there is a cushion effect and you see it in our group cash flow. Having said that, obviously, if you don't do anything there is an end to that. You can't just sit back and wait, which is why we're taking the actions now we're taking. And so therefore, the longer urgency answer is yes. I believe even with the one time cash cost that we have included for example the capital day analysis that this has been and continues to be a good cash generator.
Now that we're talking about Newsprint, remember I say a year ago, I'd say, Bill, between my six years and six weeks, Newsprint has to be the best cash engine in the whole company. The EBIT has gone all over the place, but cash has been there. So that's definitely an answer. And then your second or third question was about consolidation. Let me I think I'm still in today's news saying, yeah, I'm consolidating SORA and SORA assets with good cash returns and making sure that the cash engine keeps growing.
And I think some track record to prove that. As we discussed in the Capital Markets Day, when we talk about consolidation across companies, you get the different issues of value loss. When you get to too high customer shares, you can manage it and the dynamic is relatively challenged. So we're in it and we're driving it as for Ransomware. And I think it's
important to link to that what Jocko said. We are doing a lot of investments in the other areas where we want to grow, renewable packaging and biomaterials.
Okay. Thank you. Thank you.
We will now take our next question from Oscar Lindstrom from Danske Bank. Please go ahead.
Yes. Hello.
A couple of questions. The first one refers to the structural element of the decline in demand for graphic paper. You showed that chart showing how that decline had been faster than at least that third party institute had expected and I guess faster also than you had expected. Has that led you to speed up or should it lead you to speed up investments in your expansion areas?
Well, first of all, no criticism to any outside party, but I think we've been less wrong than most others. The fact that the plan today is a proactive part of our strategy that we've seen and we accommodated very clearly, I dare to say, as the first company in the industry saying this is reality and it's happening. The trend has been 5%. And I think global has went to 6% last year in a couple of segments all the way to 9%. So, yes, the recent four to six months has been more rapid I think, driven also by the economic cycle.
But that does not change my view on the strategic structural change. It doesn't mean that it's all going to be now 9% forever or 7% forever whatever. This is the reality right now. Second point, when the cycle drives demand down, we see and we've seen it in the earlier years is when advertising moves digitally, doesn't come back. So to some extent that cycle demand reduction tends to become somewhat permanent.
So that we need to understand. And then to answer your last question, should we accelerate investments in renewable packaging and biomaterials. Remember, I came from a pretty fast moving industry, but I still haven't figured out the three still grow seven years. And as hard as we work, it takes a couple of years to build a couple of these big mills. It's more the physics of the fiber base and the construction in this investment that is the speed limit so to say rather than anything else.
And that unfortunately in some ways is that inpatient need has to be a little more patient than I'd like to. And unfortunately, when you want to see that the cash is coming back from this new investment well that's going to take some time. I don't know how to build a pulp mill or an integrated China in twelve months.
A follow-up question to that then. I mean, so far you the emphasis has been on organic growth and sort of building new production facilities in the in biomaterials and renewable packaging. And you've done some acquisitions. Is that sort of an avenue that you think you will explore do more of in the future acquisition driven growth?
We'll continue on that path. Mean, have impact with I just reviewed in Beijing a couple of weeks ago, think very exciting opportunity. It's to me it's like a small tree and the risk trying to grow very quickly. Bula Shaft now the Pakistan also I think is very interesting market, really clear strong complementaries between us and our partner. So, I'd like to see quite a few more of those type of things where you don't spend billions and try to fix something.
You spend many, many millions and then you try to grow with our network, our expertise, our everything is faster than the standalone unit could. Does it mean that we would never consider a somewhat bigger acquisition to speed up the transformation? Sure. But we still need to be worried that we understand that we have the strength in our balance sheet and liquidity to complete the big investments that we have announced and so forth, which could mean then also that we could think about other venues in terms of your cash deals. And clearly, I hope our strategy is clear at least in that context.
We invest in growth markets not in shrinking markets in terms of acquisition.
Okay. Just two final questions. How important is your ownership in Bergvik Skog as you scale down your Swedish publication paper operations? Does it I mean is it becoming less important to have that ownership stake?
The short answer is no. And remember what I said, one of the two machines we're talking about now is actually both this Christmas the one that we've hosting Christmas and the ultimate in here is recycled fiber base. So there's no impact in Barrevik interest. And remember, we've got some great very high value creating packaging assets in Sweden and so forth. And we believe that Barrevik is a great partner in critical ownership even if we shut one version of fiber based newsprint.
Because we are a huge buyer of fiber outside Barevic in Sweden as well. Yes. This is very BariLeak is very important to us.
Should we still expect a the completion of the Chinese project or start up during Q4 twenty fourteen?
Or should
we start looking at that for 2015 instead?
Kawa is watching me. So I'll have to be precise here. Essentially, what Kawa said is true. In April 2012, we said we expect to come December 30 latest December 31 or in the second half essentially. And that which is a critical kickoff point and for the bigger implementation and so forth, we'd expect to be 2014.
But there is no big trauma. It's now six weeks beyond 2012. So you should not take no there's a huge delay and so forth. But like Kalle already said, once we get the final approval then we will come back to the market and update the schedule again. But you get
the flavor by all. All right. So we should wait for that. Good. Those were my questions.
Thanks.
Thank you.
We will take our final question from Nitin Dias from JPMorgan. Please go ahead.
Good afternoon, gentlemen. Thank you for taking my question. My question is mainly on the CapEx. Of the €561,000,000 that you spent in '20 can you give us a sense of how much of it was related to the Montes del Plata equity? And how much was related to the underlying CapEx for the Storanza assets?
And then the second one was on the 115,000,000 that you have spent in 2012, was that related to the Impak acquisition?
So if you go to page number I think it's page number seven, we have said that for 2012, the equity injection into Montes de Plata joint venture in Uruguay was €150,000,000 if that was your question.
Okay. Okay. That's helpful. And then is that included in the $560,000,000 number or is that in the $100,000,000
No, no, because and that's why we keep it, because the $556,000,000 is pure CapEx. The 115,000,000 is an equity investment in a joint venture that we put in partly equity and partly we guarantee some financing, okay? That number for next year is also part of my slide number No, not
in page seven, right? The 110,000,000 to $130,000,000
Yes. Of which basically half of that is the remaining input into Montesda Plata and half of it is the bullish investment in Pakistan.
Okay. Understood. Understood. Then a follow-up would be that if your CapEx for 2012 is about $556,000,000 your CapEx drops down significantly the like for like CapEx dropped significantly $350,000,000 to 400,000,000 in 2013. So can you give us a sense of how you're cutting down your CapEx so much over one year?
Is it because So the projects won't be
you have to remember and that is part of one of the slides that Joko did, we have some very big investments that is being so to say done during 2012 and 2011, which is Skogal and Ostrolekka, which is Skogal was finished in Q4 in November. And we are ramping up Australasia in 2013. Then very important to remember that this is excluding the China investment, which we will tell you once we get the permit ready.
Okay. And just to confirm one point that you mentioned earlier, of the $100,110,000,000 to 130,000,000 next year, you're saying half will be for Monticello Plata and half would be for the Pakistan JV. Was that right?
That's correct sir. That's correct sir.
Okay. That's very helpful. Thank you so much.
Thank you.
As there are no further questions in the queue at this time that will conclude today's Q and A session. I would now like to turn the call back to your host today for any additional or closing remarks. Thank you, Sami. And Jochen will now have the final remarks of today.
Okay. I will not repeat everything that's been said. I think this is my twenty fourth quarter actually believe it or not. And I know I sound like a broken record, but I will say one thing to you. Yes, it's not an easy environment to operate, but you knew that.
We know that. And like before at least 24 times before 23 times before, we believe that the right thing is to be very transparent about it and then also demonstrate that the earlier we take decisive action to correct it the better off we are. We will not wait for others to do something or wait for better times. Thank you very much for today and I'm sure we'll talk again soon. Thank you so much.
That will conclude today's conference call. Ladies and gentlemen, thank you for your participation. You may now disconnect.